Gratuity Calculation

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1

What are the rules for gratuity calculation and when a private company employee is eligible for this?

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For Gratuity, employee has served continuous service for 5 years in an organization.
It calculates on basic salary (in case of no breakup, it will calculate on Gross).

Calculation: last drawn basic salary x 15 days/26 then multiply by no. of years of service

Eg1: A’s basic salary is 27000.00 and her tenure in company is 5.6 years.
= 27000x15/26x5
= 77,885.6/-

Eg2: B’s basic salary is 27000.00 and her tenure in company is 5.8 years.
= 27000x15/26x6
= 93,461.5/-

Please correct me if I am wrong.

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@Reeta, will this computation now change if the new labor law will take effect?

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Computation rule will not change. However as basic salary is going to be redefined, there may be an increase in total amount. Please note that new labour codes are not yet launched.

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Is an Employee eligible for gratuity if He/She completes continuous service of 4years 8months?

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Hello @Sree , Can you please clarify in simple terms of what the below gazette order means? Does it mean, there is a cap of 20 lakhs an organization can pay an employee even if he/she works for 5/ 10 / 20 / 30 years ?

S.O. 1420 (E).—In exercise of the powers conferred by sub-section (3) of section 4 of the Payment of Gratuity
Act, 1972 (39 of 1972), the Central Government hereby specifies that the amount of gratuity payable to an employee under the said Act shall not exceed twenty lakh rupees.

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Hi Arsha,

upto 20 Lakhs is non taxable… The company can keep the upto 20L and the remaining amount if crossing 20L can pay in other ways which will be taxable.

Regards
Jitendra singh

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Hi Arsha

Gratuity is upto 20 lacs is non taxable above that limit ie if any one get 25 lacs then 5 lacs is taxable and 20 lacs is non taxable Income.

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9

Can anyone send me A Brief Guidance on Various Tax Savings Investments for FY 2022-2023 please.

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@Jite @C0025 Oh ok Thanks for clarifying. I sort of misunderstood that statement assuming 20 lakhs as max a corporate need to pay an employee even if he is eligible for amount >20lac.

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In gratuity calculation, the last drawn salary is gross or basic? As basic is one of the components of salary, can we take basic of the salary as this appears to be in violation of Section 4 of the Act. Can anyone clarify please?

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